US Dollar Support Test Post-CPI, Trump Tariffs Still Driving

USD, EUR/USD Talking Points:

• It seems markets are becoming more and more driven by President Trump, as news of peace talks in Ukraine has helped to boost the Euro and, in-turn, prodded a deeper pullback into the USD.
• While EUR/USD is breaking above the 1.0400 level looked at earlier today, the bigger question for trend there is tariffs, as the pair spiked-lower to start last week after Trump warned that tariffs were coming for Europe ‘pretty soon.’ We haven’t heard much since on that topic and it’s allowed the pair and the currency to recover.
• And true to form, since recording the below video (but before publishing this article), the White House has said that reciprocal tariffs are coming tomorrow, which has helped DXY to pullback from support.

Video

It’s been a wild day in the USD, but it may not look that way from the daily bar which, at this point, is showing as indecisive with a relatively light daily range.

The day started with a breakout on the back of another strong CPI print. Headline CPI crossed 3% on a year-over-year basis for the first time since last July’s release. This is also the fourth consecutive monthly increase in the data point, and initially this brought question to the Fed’s rate cut expectations for later this year.

Chair Powell seemed to shrug that off at day two of his testimony in front of Congress, saying “we are close but not there on inflation,” along with saying that they wanted to ‘keep’ policy as restrictive for now.

Both would seem to suggest that the ‘recalibration’ the Fed had previously spoken of isn’t necessarily off the table, even with inflationary pressures picking up. The Powell comments helped to soften the earlier breakout, but it was the Trump news later in the day that started to spark the EUR/USD breakout above 1.0400.

Trump announced that he had conversations about resolution in the war in Ukraine, and in response EUR/USD shot higher. Given the 57.6% allocation of the Euro in the DXY quote, that also helped to prod a pullback in the USD, which is when I started recording the above video.

But – as I warned in the video, this still seemed a fragile matter as comments from Trump alluding to European tariffs could produce the opposite effect.

From the daily chart of the USD below, we can see a big spot of support in play right now, where last week’s hit at 107.35 is above the prior week’s low, and so far this week’s low as also held as a higher-low.

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US Dollar Daily Chart

--- written by James Stanley, Senior Strategist